On Jan. 24, software titan Microsoft (Nasdaq: MSFT) released second-quarter 2008 earnings for the period ending Dec. 31, 2007.

  • The laggards in Microsoft's portfolio are the usual suspects: the entertainment and devices division grew sales at a tepid 3% compared to the year-ago quarter, and the online services segment doubled its loss from operations to $245 million.
  • There is a silver lining for each underperformer, though. The online business reported 38% higher sales, and entertainment products like the Xbox 360 actually made a $357 million profit this time.
  • All of that sort of drowns in the flood of cash that flows out of the Redmond machine, though. A 92% year-over-year EPS increase is no mean feat for a giant that juggles billions, not millions, in each hand.

(Figures in millions, except per-share data.)

Income Statement Highlights

Q2 2008

Q2 2007

Change

Sales

$16,367

$12,542

30.5%

Net Profit

$4,707

$2,626

79.2%

EPS

$0.50

$0.26

92.3%

Diluted Shares

9,503.0

9,942.0

(4.4%)

Get back to basics with the income statement.

Margin Checkup

Q2 2008

Q2 2007

Change*

Gross Margin

78.4%

71.1%

7.3

Operating Margin

39.6%

27.7%

11.9

Net Margin

28.8%

20.9%

7.9

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q2 2008

Q2 2007

Change

Cash + ST Invest.

$21,076

$26,400

(20.2%)

Accounts Rec.

$11,621

$9,895

17.4%

Inventory

$755

$1,725

(56.2%)

Liabilities

Q2 2008

Q2 2007

Change

Accounts Payable

$3,612

$2,944

22.7%

Long-Term Debt

$0

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q2 2008

Q2 2007

Change

Cash From Ops.

$4,567

$2,042

123.7%

Capital Expenditures

$695

$572

21.5%

Free Cash Flow

$3,872

$1,470

163.4%

Owner Earnings

$4,493

$2,419

85.7%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Microsoft

$323,510

22.7

***

Apple (Nasdaq: AAPL)

$120,780

30.2

***

International Business Machines (NYSE: IBM)

$147,900

14.8

***

Oracle (Nasdaq: ORCL)

$107,920

23.0

****

Adobe Systems (Nasdaq: ADBE)

$20,160

29.0

****

Using the latest reported numbers from Capital IQ. Keep your partners close and the competition in your vest pocket.

Related Foolishness:

Microsoft is a Motley Fool Inside Value recommendation.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.